Guarantee-backed loans and R&D investments. Do mutual guarantee consortiums value R&D?

[It is widely acknowledged that firms performing R&D investments are very likely to undergo financial constraints (FC) due to their specific characteristics, which make external debt an imperfect substitute for internal finance,especially for small sized enterprises. This situation calls into question the role that mutual guarantee consortiums(MGCs) might have in mitigating the effect of FC on the innovative activities performed by small and medium enterprises. In this paper, we explore how effectively this role is played by exploiting a large dataset of guaranteebacked loans provided by Eurofidi (an Italian mutual guarantee consortium) including both financial and non financial informations on the applicant firms. Taking into account the different purposes of each loan application (including whether it was asked for sustaining investments in R&D and innovation), we estimate the probability of default (PD)through a bivariate probit which takes into account the problem of sample selection bias that usually affects credit scoring models calibrated only on accepted applicants. We find a crucial set of variables that increase (decrease) the probability of positive granting decision without reducing (raising) the likelihood of a default, thus evidencing the absence of a minimizing default risk behavior of the lending institution with respect to these observed characteristics of the applicants. In particular, when the destination of loans is considered, results show that loans demanded to sustain R&D and innovation activities have a lower probability of turning into bad loans but they also have a lower probability of being accepted. It emerges that innovative firms are subject to relevant credit constraints also when considering the possibility to apply to a mutual guarantee body, which should theoretically facilitate their access to debt finance.]